Kate Payne comments in FTAdviser on whether public schemes are safe from the GMP Equalisation ruling
Public sector pensions schemes won’t have to change the way they equalise guaranteed minimum pension (GMP) benefits, despite a new court ruling on this issue.
Defined benefit (DB) scheme members who contracted out are set to receive millions of pounds in back payments after a landmark ruling in a case brought by the trustees of Lloyds Bank’s DB schemes this summer.
An HM Treasury spokesman said: “Public sector schemes already have a method to equalise guaranteed minimum pension benefits, which is why we will not have to change our method as a result of this judgment.”
Kate Payne said that the Treasury’s assertion on the public service pensions scheme was likely due to a consultation which closed in January this year, which announced that the government will extend its current interim solution for ensuring equalisation and indexation of GMPs for those who reach state pension age on or before 5 April 2021.
According to estimates from the Government Actuary’s Department, this will cost public schemes around £5bn.
Kate also said that: “A number of options were considered, including the ‘case-by-case’ basis, full indexation and conversion. The government believes conversion may be the better option, subject to further consideration of methodology and any legislative changes that might be required.”
Both Treasury and the Department for Work and Pensions were interested parties in the Lloyds case.
Kate said that the DWP joined “because there were questions around the drafting of the current conversion legislation”.
“The court found that the current provisions in The Pension Schemes Act 1993 did enable conversion for ‘earners’ as well as ‘survivors’. HMT were interested in the methodology and conversion, given their preferred long term solution for public service pension schemes, as well as the issues around back payments.
“The Treasury will presumably be considering the implications for public service pension schemes of the chosen methodology under the Lloyds case.”
Please read Kate’s comments in FTAdviser
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